Fund raising by Indian companies through the offshore debt market is expected to rise in 2015 for refinancing of old loans and to fund capital expenditure once the investment cycle starts.
In the second half of the current calendar year, issuances had slowed. Most companies had front-loaded their fund-raising plans, in anticipation of a rise in US interest rates.
Even so, the momentum is expected to pick up next year. “This year has seen increased offshore bond issuance at about $18 billion ($15 bn in 2013). In 2015, we might see issuance over $20 bn, driven by global liquidity, attractive spreads and more debut issuers,” said Manmohan Singh, head, debt capital markets — India & Southeast Asia, at RBS.
The market is factoring in a rise in US interest rates in the second half of 2015. However, it is also expected that a negative interest rate regime by the European Central Bank (ECB) will add impetus to issuance volume across the globe.
“Going ahead, we might see more banks and companies tapping other overseas bond markets, apart from the dollar.
But, it is likely that if any company wants to raise over $300-400 mn, they will still head towards the US bond market, as this is more developed than the rest,” said the corporate head of a foreign bank.
Earlier this month the ECB left interest rates unchanged, holding these at record lows while it considers whether to print money to buy government debt and shore up the euro zone economy. In September, Standard and Poor's raised the outlook for India's 'BBB-minus' rating to 'stable' from 'negative'.
It had cited the new government mandate and improved political setting as offering a conducive environment for reforms.
“The offshore capital markets are increasingly attractive to Indian corporates, partly because of better pricing for their bonds. The offshore markets now present a relatively more cost-effective funding source, compared with onshore funding for Indian corporates that have material cash inflows denominated in foreign currency,” said Fitch Ratings on Wednesday.
It said the pricing of offshore bonds had also been aided by a reduction of witholding tax on interest payments of offshore bonds to five per cent from July, compared with 20 per cent earlier.
“Investor demand for Indian bonds has also been strong due to expectations of improvement in Indian economic growth, improved political stability and strong liquidity in global capital markets,” it added.
Fitch also believes that with a growing appetite for Indian bonds, sectors that traditionally have not accessed these markets might begin doing so in 2015.
